More on Oilsands

Following-up on Rob's last post, on a possible WTO complaint by Canada relating to an EU regulation on "dirty" oil, here is an op-ed on the same issue from Canadian lawyer Lawrence Herman:

There’s a fundamental WTO legal issue at stake [here].

It concerns the WTO prohibition against governments discriminating against “like” goods from different countries. This is the famous most-favoured-nation treatment rule. It requires fully equivalent treatment to imports of “like” goods wherever they come from. And the equally famous “national treatment” rule means that you can’t discriminate against imports in favour of “like” domestic products. It means that all duties, taxes or other border measures – such as carbon offset requirements – that differentiate between these “like” goods are WTO-illegal.

The question comes down to what is “likeness” in WTO terms.

Numerous WTO panel decisions have said that “likeness” is based on the intrinsic nature of the goods, not how they are made. Likeness is determined by physical properties, usage and, importantly, whether the goods compete in the same market. It is the direct “competitiveness” of the goods that is normally critical in determining likeness, according to these decisions.

How the goods are made – production and process methods – is not a differentiating factor when the imported goods are like domestic products and other imports in every other respect. A 2011 WTO Secretariat Working Paper examined the jurisprudence in depth going back many years and concluded that border measures based on production methods that don’t affect the “likeness” of the final product would be in contravention of the WTO Agreement.

Coming back to the Canada-EU dispute, the issue is this: Can the EU apply differential border measures – such as carbon offsets – on fuel from Canada that is produced from bitumen but is “like” conventional fuels in terms of physical and chemical properties, end-usage and, importantly, that competes in the same market?

Canada says definitely not. Admittedly, each case must be looked at on its facts, but WTO jurisprudence leads to the conclusion that Canada is right.

I take a broad view of "likeness," one that is based on the competitiveness of the products, so I agree that the different types of oil at issue are probably "like."

On the other hand, I think that the other elements of any WTO claim will be more complex. Is there "discrimination" here? We could be looking at a GATT Article I/Article III claim, with an Article XX defense. Or, we could be looking at a TBT 2.1/2.2 claim. Somewhere in these claims there would have to be an analysis of issues of disparate impact, the purpose of the measure, the degree to which it achieves its goals, etc. Reasonable people can disagree on how that analysis should be carried out, and the proper conclusion in this case.

We should find out soon what the Appellate Body thinks about the aforementioned TBT provisions in several ongoing cases. Perhaps that will provide some guidance on how an oilsands case would play out.

Comments

Following-up on Rob's last post, on a possible WTO complaint by Canada relating to an EU regulation on "dirty" oil, here is an op-ed on the same issue from Canadian lawyer Lawrence Herman:

There’s a fundamental WTO legal issue at stake [here].

It concerns the WTO prohibition against governments discriminating against “like” goods from different countries. This is the famous most-favoured-nation treatment rule. It requires fully equivalent treatment to imports of “like” goods wherever they come from. And the equally famous “national treatment” rule means that you can’t discriminate against imports in favour of “like” domestic products. It means that all duties, taxes or other border measures – such as carbon offset requirements – that differentiate between these “like” goods are WTO-illegal.

The question comes down to what is “likeness” in WTO terms.

Numerous WTO panel decisions have said that “likeness” is based on the intrinsic nature of the goods, not how they are made. Likeness is determined by physical properties, usage and, importantly, whether the goods compete in the same market. It is the direct “competitiveness” of the goods that is normally critical in determining likeness, according to these decisions.

How the goods are made – production and process methods – is not a differentiating factor when the imported goods are like domestic products and other imports in every other respect. A 2011 WTO Secretariat Working Paper examined the jurisprudence in depth going back many years and concluded that border measures based on production methods that don’t affect the “likeness” of the final product would be in contravention of the WTO Agreement.

Coming back to the Canada-EU dispute, the issue is this: Can the EU apply differential border measures – such as carbon offsets – on fuel from Canada that is produced from bitumen but is “like” conventional fuels in terms of physical and chemical properties, end-usage and, importantly, that competes in the same market?

Canada says definitely not. Admittedly, each case must be looked at on its facts, but WTO jurisprudence leads to the conclusion that Canada is right.

I take a broad view of "likeness," one that is based on the competitiveness of the products, so I agree that the different types of oil at issue are probably "like."

On the other hand, I think that the other elements of any WTO claim will be more complex. Is there "discrimination" here? We could be looking at a GATT Article I/Article III claim, with an Article XX defense. Or, we could be looking at a TBT 2.1/2.2 claim. Somewhere in these claims there would have to be an analysis of issues of disparate impact, the purpose of the measure, the degree to which it achieves its goals, etc. Reasonable people can disagree on how that analysis should be carried out, and the proper conclusion in this case.

We should find out soon what the Appellate Body thinks about the aforementioned TBT provisions in several ongoing cases. Perhaps that will provide some guidance on how an oilsands case would play out.